TCS Daily

Outsource This

By Ravi Visvesvaraya Prasad - March 4, 2004 12:00 AM

The increasingly protectionist sentiment in developed countries against outsourcing of software, business processes, and contact center services to India has reached hysterical proportions. Labor unions in the US and UK have demanded that India should compensate or retrain the workers rendered redundant. Several politicians have demanded that Indian companies invest in their constituencies.

After US Democratic presidential candidate John Kerry labeled US companies outsourcing abroad as traitors, Senate Minority Leader Tom Daschle, supported by Sens. Hillary Clinton and Edward Kennedy, introduced the "Jobs for America Act". This would require detailed disclosures by US companies outsourcing overseas. Then, last month, Democratic Sen. Christopher Dodd introduced the "United States Workers Protection Act". This would prohibit federal and state governments from buying goods or services produced by overseas workers or by US companies using foreign subcontractors. New Jersey, Maryland, Indiana, Michigan, Colorado, Ohio, Minnesota and Washington also introduced bills in their legislatures to prevent local corporations from outsourcing abroad.

Most outrageous was the demand made by US Trade Representative Robert Zoellick in New Delhi in mid-February for India to reduce its $9 billion trade surplus with the US. Zoellick demanded that India should immediately open up all its services sectors, as well as its agricultural sector, and remove all agricultural subsidies.

Luckily the Indian government stood firm. Commerce and Industries Minister Arun Jaitley snubbed Zoellick: "On one hand, you talk about opening of our markets. On the other, you want to ban Business Process Outsourcing. Our agricultural sector is fragile as it is not subsidized, like in the US."

Deputy Prime Minister Lal Krishna Advani asserted: "The US has double standards. It talks of globalization and liberalization, pressuring us to open our markets to its goods and services. But it simultaneously protects its own markets and jobs. It wants to ban outsourcing to India, accusing us of taking away the jobs of its computer professionals."

How can we get past the rhetoric? The Indian government deserves kudos for having quickly established an Inter-Ministerial Working Group to mount a worldwide public relations campaign and lobby politicians from G8 nations. This Group has representatives from the Ministries of Commerce and Industry; Finance; External Affairs; and Communications and Information Technology; as well as from the National Association of Software and Service Companies.

This Working Group should:

* Publicize the numerous research reports by eminent economists showing how outsourcing benefits G8 economies. Several eminent economists, notably Gregory Mankiw, chief of the White House Council of Economic Advisers, have emphasized that outsourcing benefits G8 countries by lowering costs to their consumers and by making their corporations more efficient. The Economist magazine recently carried a series proving that outsourcing was a win-win activity benefiting both countries. A study by McKinsey Global Institute found that for every dollar of work outsourced by the US, it got back $ 1.14 in income, and the countries doing the work gained 35 cents.

* Commission experts to write articles in prominent journals in favor of outsourcing. Hewlett-Packard's chairman Carly Fiorina in the Wall Street Journal and Jagdish Bhagwati and Nicholas Kristof in the New York Times have explained why banning outsourcing is harmful to the US.

* Issue rebuttals to negative features in the mass media about Indians stealing jobs. Instead encourage positive features with a human interest angle in the mass media about how outsourcing benefits the common man in G8 countries by lowering costs to consumers. The influential Lou Dobbs program on CNN called on American consumers to boycott products and services of US companies which outsourced. India should point out that then Americans would have to give up all their cars, clothes, televisions, refrigerators, stereos, telephones, and computers.

* Lobby politicians in G8 countries. India should point out to US politicians how the UK government has withstood intense pressure mounted on it by British trade unions. Also, Francisco da Camara Santa Clara Gomes, the EU's ambassador to India, declared: "The European Union favors free movement of goods and services. European companies will not be prevented from outsourcing to India." D

* Get Fortune 500 companies to publicly explain the rationale behind their outsourcing. India should persuade major outsourcers like Accenture, EDS, American Express, General Electric, AT&T, Citicorp, and Bank of America to launch public relations campaigns explaining the rationale behind their outsourcing. India could draw upon the Computer Systems Policy Project, an industry consortium founded by Hewlett Packard, Intel, IBM, Dell, and NCR, which is lobbying hard against US's protectionist legislation.

* Ally with free-trade proponents in academia, think tanks, political action committees, and industry associations in G8 countries. These include the Information Technology Association of America, US National Association of Manufacturers, US Chamber of Commerce, American Bankers Association, McKinsey Global Institute, Cato, Brookings, American Enterprise Institute, and Institute for International Economics.

* Encourage Indian companies to open front-end offices in G8 nations and hire local personnel. These "local faces" could be used for front-end tasks of business development, customer requirements analysis, marketing, and public relations.

In an era of globalization and liberalization, Ricardo's Theory of Comparative Advantage will operate inexorably. Moreover, Indian corporations are now moving up the value chain and should soon begin outsourcing their own non-core operations. Local subsidiaries of multinationals have already begun to grab such contracts. Bharti, a telecom services provider, recently outsourced its entire network management functions to Ericsson. Ericsson also absorbed many of the Bharti employees who were rendered redundant. The era of protected jobs is over, even in India.

The author is a consultant in information technology and telecommunications.


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